Supreme Court to Decide on Hearing Rent-Control Challenge

The Supreme Court will meet  on April 13 to discuss whether to hear a challenge to New York City’s rent-stabilization law.  

That means that Manhattan landlords James and Jeanne Harmon’s claim that rent regulations are an unconstitutional violation of their property rights has cleared one hurdle to a full hearing: At least one Justice, presumably one of the four in the Court’s far-right bloc, considers their case worthy enough to put it on the “discuss list.”

Four Justices must sign on for the Court to grant certiorari—full consideration—to the Harmons’ petition. The Supreme Court generally does that for only about 1 percent of the cases brought to it; in 2009-2010, it heard oral arguments in 82 of the more than 8,000 petitions submitted. Less than one-third reach the “discuss list.” The others are automatically denied.

Two federal courts have so far rejected the Harmons’ suit: the federal District Court that covers Manhattan, in March 2010, and the 2nd Circuit Court of Appeals, in March 2011. When the Harmons appealed to the Supreme Court, the New York state and city governments at first didn’t respond, because they thought the issue had been obviously settled, as several previous Supreme Court decisions have held rent controls constitutional and set strict standards for judging economic regulations unconstitutional. But last year, in an unusual move, the high court asked the city and state to submit briefs arguing why the case should not be heard.

If the Court takes the case and strikes down rent stabilization, it would put one million New York households—almost one-third of the city’s people—at risk of losing their homes.

 

The Arguments

James Harmon, a federal prosecutor during the Reagan administration, is representing himself. His basic argument is that the rent-stabilization law is unfair, because it means he has to charge his tenants less than market rate and can’t evict them without cause. He says this essentially gives tenants ownership rights to their apartments, and thus forces landlords to accept a “permanent physical occupation” of their property.

The Harmons claim that rent stabilization violates the Fifth Amendment’s “takings clause,” which says the government cannot take private property for public use without just compensation (which the 14th Amendment extended to cover state and local governments), and the Article I clause saying the government cannot enact laws “impairing the obligation of contracts.” They claim that it also violates their 14th Amendment rights to due process and equal protection, because it doesn’t substantially advance a legitimate governmental interest. Rent regulation doesn’t promote affordable housing, they say, because it covers only part of the city’s rental housing stock, is not limited to low-income people, and is justified by a “state of emergency” that has lasted for more than 60 years.

The Daily News endorsed the lawsuit in a March 26 editorial titled “The Rent Is Too Damn Low.”

A three-judge panel on the 2nd Circuit appeals court rejected all those claims. It said that numerous court decisions have held that “government regulation of the rental relationship does not constitute a physical taking” and that even a tenancy of “indefinite duration” is not “a permanent physical occupation of property.” The rent-stabilization law, it added, gives owners the right to oust tenants if they need the apartment for personal use, plan to demolish the building, or the tenant violates the lease.

The 2nd Circuit also dismissed the Harmons’ claim about contracts, saying that they knew the apartments had been under rent regulations for decades before they acquired the building in 2005, and thus the law could not impair lease agreements. It denied the due-process and equal-protection claims on technical grounds, saying they were covered by the takings and contracts arguments. It said the Harmons’ other claims, such as that the City Council had failed to notify them personally before it renewed the law, were “without merit.”

 

The City and State’s Respond

The city and state defend the Rent Stabilization Law, enacted in 1969, as a reasonable exercise of police power to redress a very serious crisis, necessary to forestall profiteering, speculation, and other threats to the public health and welfare.

The city’s brief, filed by Corporation Counsel Leonard Koerner, says that rent regulations are not a taking, as they do not take away the landlord’s right to make money on his or her property; that due process does not limit rent regulations to short-term emergency conditions; and that the law is “a rational legislative effort to address a serious shortage of affordable rental housing.”

In 1992, it notes, the Supreme Court upheld Escondido, California’s rent-control law for mobile-home parks. The landlords in that case had argued that rent controls were a physical-occupation taking, because they gave tenants the right to occupy space “at below-market rent indefinitely.” The Court responded that the owners “voluntarily rented their land” and the law merely regulated “the relationship between landlord and tenant.” 

A 1934 Supreme Court decision, it adds, held that economic regulations are “unconstitutional only if arbitrary, discriminatory, or demonstrably irrelevant to the policy the legislature is free to adopt.”

The brief also addresses the political-propaganda claim that rent stabilization mainly benefits people living in affluent neighborhoods in Manhattan. The greater disparity between regulated and market rents there, it says, is a sign that rent stabilization is doing its job—because it provides larger rent reductions in “parts of the city where market rents are the most onerous.” 

The state’s brief, filed by Attorney General Eric Schneiderman, makes similar points. Some of its arguments are problematic from a tenant point of view: It says that rent stabilization “envisions a gradual and orderly transition to a housing market where regulation of rent increases is no longer needed,” and that, thanks to vacancy decontrol, less than half the city’s apartments are still regulated. 

The state also argues that the Harmons do not have a right to sue in federal court, because they did not seek compensation for their losses from the “taking” in state court.

“Petitioners’ real complaint is not that they are being required to suffer an uninvited permanent physical invasion, but rather that they are unable to earn market rents on three of their apartment units,” it states.

 

Extreme Property Rights

Several landlord and far-right legal organizations have filed amicus briefs supporting the Harmons. The Rent Stabilization Association, one of three New York landlord groups to do so, contends that rent stabilization should be struck down because it has failed to achieve a transition to an unregulated rental market, as the housing shortage used to justify the stabilization law has continued for more than 40 years.

State law authorizes the city to limit rent increases as an emergency measure if fewer than 5 percent of rental apartments are vacant. “Not once since 1969 has the vacancy rate gone above 5 percent,” the RSA states. That, it says, means that rent stabilization has failed.

In another amicus brief, the far-right Pacific Law Foundation, the libertarian Cato Institute, and a San Francisco landlord group denounced rent stabilization as a “predatory” scheme.

Their legal argument relies on more convoluted technical grounds. If a law cannot be challenged as a “taking” on the grounds that it “does not substantially advance legitimate state interests,” the PLF contends, then property owners should be allowed to challenge it as a due-process violation. Otherwise, it says, they will “have been stripped of all meaningful constitutional protections of their rights.”

That argument is an attempt to slip around Chevron v. Lingle, a 2005 case in which the Supreme Court unanimously upheld a Hawaii law limiting how much rent oil companies could charge gas stations. Chevron argued that the law should be considered a taking, because it did not substantially advance a state interest. Doing that, Justice Sandra Day O’Connor wrote, would require the judicial system to review the effectiveness of “virtually any regulation of private property.” 

Instead, the Court held that a regulation can only be judged a taking if it puts an unfair burden on property owners.

 

Settled or Unsettled?

The criteria the Supreme Court uses to select cases are not public record. But in 1987, then Chief Justice William Rehnquist wrote that the Court is looking for cases “involving unsettled questions of federal constitutional or statutory law of general interest.” 

The Court rarely overturns established precedents; even when it had a nominal anti-abortion majority in 1992, it sustained Roe v. Wade. When it does, it’s often because the political climate has changed dramatically enough to make change compelling: Brown v. Board of Education in 1954, overturning the “separate but equal” rule set in Plessy v. Ferguson in 1896; and Lawrence v. Texas in 2003, striking down the antisex laws it had upheld in Bowers v. Hardwick in 1986.

In the 2010 Citizens United v. Federal Elections Commission case, which overruled a 1990 decision that upheld a ban on political contributions by corporations, Chief Justice John Roberts wrote that a precedent could be overruled when its “underlying reasoning has become so discredited that the Court cannot keep the precedent alive without jury-rigging new and different justifications to shore up the original mistake.”

If the Supreme Court chooses to consider the Harmons’ lawsuit, it would mean that four Justices—presumably Roberts, Antonin Scalia, Clarence Thomas, and Samuel Alito—believe there is a valid argument for a radical expansion of property rights, that destroying legal protections for tenants is as much an idea whose time has come as abolishing racial segregation was in 1954.